The Pakistani government is evaluating a potential reduction in the corporate tax rate as part of the budget preparations for the 2025-26 fiscal year. This move, potentially accompanied by other tax reliefs, is being considered to help invigorate economic activity and stimulate job growth within the country.
Officials suggest that newfound fiscal flexibility is making these considerations possible. This improved budgetary position stems partly from reduced government expenditure due to lower international oil prices. Additionally, a significant factor is the State Bank of Pakistan’s monetary policy easing, which has seen the key interest rate slashed by 10 percentage points since June 2024, bringing it down to the current 12%.
Haroon Akhtar Khan, the Special Assistant to the Prime Minister (SAPM) for Industries and Production, recently advocated for such measures. Speaking at events hosted by the Karachi Chamber of Commerce & Industry (KCCI) and the Pakistan Business Council (PBC), Khan praised the Prime Minister’s efforts in using declining oil costs to negotiate lower power tariffs with the International Monetary Fund (IMF). He proposed that any further savings from oil prices should be directed towards additional power rate cuts and lowering the corporate tax burden.
Khan explicitly stated his preference for removing the existing Super Tax, which has significantly increased the effective tax rate for profitable companies (currently 29% base rate, rising to 39% with the 10% Super Tax for many, and even higher for banks). He confirmed his opposition to extending the Super Tax in the upcoming budget.
The SAPM explained that the substantial decrease in the central bank’s policy rate has lowered the government’s debt servicing costs, creating fiscal space. However, he cautioned that Pakistan’s current IMF program limits the immediate deployment of these funds. “In the next budget [for FY26], we may be able to use the fiscal space in order to give some relief in taxes,” Khan stated at the KCCI, later clarifying to Business Recorder that “next budget” referred specifically to FY2025-26.
While acknowledging that the IMF agreement imposes certain constraints for the next couple of years, Khan stressed that not all policy decisions are dictated by external partners. He argued that domestically created hurdles can be addressed, specifically mentioning the “rationalization of the Corporate Tax Rate.”
Furthermore, Khan mentioned ongoing work to provide relief to exporters via the Export Finance Scheme (EFS). He also highlighted the excessive bureaucracy facing new businesses, noting the need to eliminate the cumbersome requirement for roughly 350 certifications and NOCs. Simplifying this process is seen as crucial.
